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Manhattan apartment sales fell 29% in the fourth quarter, sparking fears of a frozen market where buyers and sellers are staying on the sidelines due to financial fears and anxieties.
There were 2,546 sales in the quarter, down from 3,560 last year, according to a report from Douglas Elliman and Miller Samuel. The decline was the largest since the third quarter of 2020, during the height of the pandemic.
Prices also fell for the first time since early 2020, with the median price down 5.5%.
The drop in both sales and prices marks the end of the roaring comeback in Manhattan real estate after the worst days of the pandemic and raises fears of continued weakness into the new year. Rising interest rates, a weaker economy and a falling stock market, which has an outsized impact on Manhattan real estate, are likely to weigh on the market this year.
Analysts say their big concern is a prolonged standoff between buyers and sellers — with sellers unwilling to list amid falling prices and buyers holding off their searches until prices fall further.
“I could see the market moving sideways, with some modest declines in some sectors,”[ads1]; said Jonathan Miller, managing director of Miller Samuel, the valuation and market research firm. “And it could weaken further if there is a backdrop of recession and job losses.”
Although prices and sales are falling, inventory remains tight as sellers keep listings. There were 6,523 apartments on the market at the end of the fourth quarter, according to the report, up just 5% from last year, but still well below the historical average of about 8,000. Without a big increase in inventory, analysts say prices are unlikely to fall enough to lure back many buyers waiting for discounts. The average discount from first list price to selling price was 6.5%, up from 4.1% in the third quarter, according to Serhant.
Rising interest rates have also prompted more Manhattan shoppers to shop with cash, which accounted for 55% of all sales in the fourth quarter, the highest on record, according to Miller.
As with much of the recovery, the high-end and luxury segment remains the strongest. Median sales prices for luxury apartments — defined as the top 10% of the market — rose 4% in the fourth quarter, compared with a decline in the broader Manhattan market. Median prices for luxury apartments are up 21% compared to 2019, double that of the wider market.
The outlook for 2023
The pipeline of deals in the works or recently signed suggests a slow first quarter. There were just 2,312 contracts signed in the fourth quarter, down 43% compared to last year, according to Brown Harris Stevens. The quarter was the worst for new contracts signed in the last decade, according to a report from Serhant.
“Contracts signed are a timely indicator of demand and recorded one of the slowest finishes of any year since 2008,” according to Brown Harris Stevens.
However, brokers say they remain optimistic and many are predicting a surprise upside in 2023, as prices stabilize and buyers find opportunities in a softer market. John Gomes, co-founder of the Eklund Gomes team at Douglas Elliman, said December was “on fire” with a frenzy of year-end deals.
“It really caught us off guard,” he said. — Things really turned around in December.
Gomes said one buyer paid $20 million for a Greenwich Village townhouse that wasn’t even on the market. He said a property investor made offers for four separate apartments in new developments “which appear to be accepted today.”
Ian Slater at Compass said there was a big “incoherence” in the market in August and September, with a wide gap between buyers and sellers and the market starting to weaken. “Now I see buyers accepting interest rates as the new normal and feeling more comfortable buying — or at least that prices aren’t falling.”
Gomes said one reason for the activity in December is foreign buyers, who began returning to the city in December. With the dollar weakening slightly and travel restrictions lifted around the world, brokers say buyers from the Middle East and China returned in December.
Brokers say buyers are also using cash to avoid the higher interest rates and take advantage of lower prices. And developers with new apartment buildings on the market are lowering prices to unload unsold apartments.
“Developers are realistic, they make concessions on price and final costs,” he said. “I feel optimistic about the coming year.”